20 FEBRUARY 2023

How Do Car Loans Work?

car
5 min read

Getting a car loan is a reliable way to purchase a car quickly and conveniently. Money3 will give you a fair go at applying for car finance. Keep reading to learn how our car loans work.

Sienna
Sienna Cowles
Marketing Analyst
Couple in car showroom discussing their vehicle purchase with new cars in the background

What are car loans?

Car loans are a type of personal loan you can take out to help you purchase a new or used car. Car loans are offered by financial institutions (e.g. banks) and responsible, independent lenders.

You are usually required to meet eligibility criteria in order to qualify for a car loan. After being approved, your lender may deposit the loan amount into your bank account or transfer it directly to your car dealership (or private seller) when the loan is secured against the vehicle. As a car loan recipient, you will need to pay back your loan amount with interest to your lender.

How does car financing work?

If you don’t have the funds to purchase a car ready at hand, a car loan can ensure that you have the money you need. Whether you’re looking to purchase a used or new car, there are car loan options you can consider.

A car loan lets you borrow money in return for repayments made back to your lender with interest. Your loan will come with conditions specific to your situation - for example, how long you will need to repay your loan and how often you make repayments.

At Money3, we may offer you a pre-approval on your loan, so you can better gauge your borrowing power. We could also help you find your ideal car and work with your dealership or seller directly.

What factors should be considered in a car loan?

When taking out a car loan, there are a number of factors that should be considered:

  • Interest rate: interest will be added to the regular repayments that a borrower needs to make. As such, it is important to consider interest rates and whether a fixed rate loan may be more suitable
  • Car dealer: consider whether the car dealership or seller you’re looking to purchase a car from works with your lender
  • Car loan repayments: ensure that your car loan repayments are affordable, and you can make them comfortably
  • Loan period: you may want to settle on a loan period that is compatible with your financial timeline
  • Upfront and ongoing fees: depending on the lender, you may be required to pay ongoing fees in addition to upfront repayments, such as regular maintenance costs.

Please note, that you may want to obtain legal and financial advice in relation to the loan contract being offered to you.

What car loan options are available?

Money3 offers a wide selection of car loan options. It may be useful to compare car loans to find one that is best suited to your financial goals and needs.

Secured car loan

Secured car loans are loans where the lender possesses security over the car (so that they can sell it if the borrower can’t repay the loan). A secured car loan is often considered low-risk with lower interest rates.

Find out how secured car loans work with Money3.

Bad credit car loan

A bad credit car loan is a car finance option designed for those with a bad credit rating. At Money3, we’ll give you a fair go at applying for car finance, even if you have a poor credit history.

Centrelink* friendly car loan

You may be eligible for Centrelink friendly car loans if you regularly receive Centrelink welfare payments*. You may be able to receive car finance even if you are on Centrelink income*, as long as you meet Money3’s eligibility criteria.

Single parent car loan

Single parent car loans are car loans offered specifically to single parents. Their lending criteria may be more flexible (compared to other car loans) as they take into account the earnings of a single-income family.

Fixed rate car loan

A fixed rate car loan is a car loan where repayments are made with a fixed interest rate. As a result, borrowers can expect to make the same repayments throughout their loan term.

Car Loan FAQs

How long your car loan lasts depends on the loan term conditions outlined by your lender. Generally, Money3 car loans last between 2 and 3 years, with some lasting up to 6 years. The loan period will depend on the amount you are borrowing and the affordability of the loan.

You may consider taking out a car loan if you’re in a hurry to purchase a car but don’t have enough funds to do so currently.

Your car loan repayments are calculated by your loan amount plus interest and fees, divided by the loan term (the rate at which you need to make repayments).

Taking out a car loan may positively or negatively affect your credit score depending on how reliably you make repayments (i.e. on time).

1. Subject to verification, suitability and affordability

Related Articles

Also check out the related articles below:

How can I qualify for a car loan?

If you’re looking to get a car loan, it may be beneficial to learn how you can qualify for one. Money3 has fixed loan criteria. However, our loan terms are flexible to suit your needs.

Basic Breakdown: Fixed Vs. Variable Interest Rate Car Loan

Learn the difference fixed interest rate and a variable interest rate car loan with Money3's simple guide.